One of Mexico's most robust states is getting in on the structured act. Nuevo Leon is securitizing payroll taxes in a 12-year transaction sized at US$978 million (US$94 million). With Value Casa de Bolsa as lead, the deal is the second subnational transaction to use payroll taxes as collateral after the State of Mexico debuted the asset late last year.

Structurally, the deal mirrors the last one, except that Leon will issue the paper directly, whereas the State of Mexico used a trust. A trust will still be used to administer the flows, a source said.

From a credit standpoint, the issuers are also night and day. While the State of Mexico is rated in the double-B category on the national scale, Nuevo Leon is investment-grade. Hence the enhancements will not have to be as massive to garner a rating in the vicinity of double-A.

Thompson & Knight is legal counsel for the Leon transaction.

On a per capita basis, Nuevo Leon is wealthier than other states and in absolute terms it produced a GDP of US$44 million in 2002. It is the home of Monterrey, the third largest city in Mexico and a magnet for manufacturing.

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